Nasdaq in four-session winning streak

But concerns persist over oil, retail spending, earnings

By

MarkCotton

NEW YORK (CBS.MW) -- U.S. stocks edged higher Tuesday with a dividend hike from McDonald's giving blue chips a lift, while the Nasdaq gained on strength in Internet shares, despite continuing concerns over oil prices, retail spending trends and the outlook for corporate earnings.

The Dow Jones Industrial Average
DJIA, +0.45%
ended up 3.4 points at 10,318.16 after rising to 10,340 on McDonald's dividend news.

The Nasdaq Composite Index
$COMPQ
posted gains for the fourth straight session in a row, ending up 5.02 points, or 0.3 percent at 1,915.40. The tech-rich index was helped by strength in Internet stocks, led by gains for eBay and Yahoo.

Within the Dow, the fast-food giant
MCD, +1.56%
was one of the biggest percentage gainers, up 1.6 percent after it raised its annual dividend by 15 cents, or 38 percent, to 55 cents per share.

Pfizer shares
PFE, -0.25%
slipped a penny to $32.12 as investors weighed the findings of a U.S. Food and Drug Administration panel, which said that while antidepressant drugs may trigger suicidal behavior in a percentage of children and adolescents, they can also be effective in treating pediatric depression. Pfizer makes Zoloft, one of the leading treatments for depression.

Market strategists said concern over corporate outlooks and rising oil prices was weighing on sentiment.

"We are in the preannouncement confession season, and it's been a little rougher than what we've seen in the past quarters," said Peter Boockvar, equity strategist at Miller Tabak. "It's enough to cause a pause in the market at these levels."

Office Depot, Kroger and LSI Logic were the latest companies to issue downbeat outlooks on future earnings and revenues.

Boockvar added that a fresh rise in oil prices amid supply concerns was another factor keeping the market in check.

Crude futures continued to surge on the threat to U.S. oil production facilities posed by Hurricane Ivan as it nears the Gulf of Mexico, with reports of sabotage on Iraqi export pipelines further lifting prices. See full story.

Turning back to the broader market for equities, decliners outpaced advancers by a 16 to 15 margin on the New York Stock Exchange, and by a 16 to 14 score on the Nasdaq.

Volume was 1.2 billion shares on the Big Board and 1.49 billion shares on the Nasdaq.

In other markets, the dollar eased against other currencies after the government reported a yawning current account deficit.

Gold futures closed near $408 an ounce as the greenback's weakness raised the attractiveness of the precious metal as an investment.

After trading lower for most of the session, bonds reversed course to close higher.

Retail in focus

Retail stocks were in the spotlight after the latest data offered a mixed picture on consumer spending and as investors digested lackluster earnings outlooks from Office Depot and Kroger.

The sector's sales in August fell a larger than expected 0.3 percent, marking the third decline in the past five months. Economists had been expecting a 0.1 percent drop.

"Retail sales were a little a bit of a disappointment," said Peter Cardillo, chief market analyst and strategist at S.W. Bach.

At the same time, the figures were not that much of a surprise, he added. At the beginning of September, a mixed bag of same-store sales figures from retailers had already given the market a taste of the government's upcoming August data.

Meanwhile, the retail sales index compiled by the International Council of Shopping Centers and UBS showed an increase of 0.2 percent in same-store sales for the week ended Sept. 11, compared with the prior week.

ICSC characterized the increase as "moderate," reflecting Labor Day sales, back-to-school shopping and the lingering impact of a sales-tax holiday in New York state.

In other news for the sector, shares of Office Depot
ODP, +3.65%
slumped 6.8 percent after the office supply retailer warned that third-quarter earnings would fall short of expectations due to lower sales across all three of its business segments. See full story.

Shares of supermarket giant Kroger
KR, +2.35%
tumbled 4.3 percent after the company posted second-quarter results below analysts' expectations, and warned that it would be a challenge to meet its same-store sales growth target of 1.3 percent for the full year.

On a more positive note, shares of Pier 1 Imports
PIR, +0.54%
rose 5.9 percent after the specialty home-furnishings retailer posted second-quarter earnings that topped analysts' estimates by a penny. See full story.

For its part, Federated Department Stores
FD
said late Monday that it is planning to change the name of all its regional department stores to the Macy's nameplate. Federated shares climbed 1 percent, to $46.02. See full story.

Shares of Kmart
KMRT
jumped $3.67, or 4.3 percent, to $88.78 after UBS raised its price target on the discount retailer to $101 from $85.

"We are more comfortable with the cash-flow generation after strong second-quarter results, and no longer value the company simply on its assets," analyst Gary Balter told clients.

The raised outlook boosted positive sentiment on the sector. Yahoo
YHOO
was another winner, gaining 4 percent, as it announced the acquisition of Musicmatch, a privately held provider of personalized music software and services, for $160 million.

MGM, and more gloom for the chip sector

Metro-Goldwyn-Mayer
MGM, -0.17%
extended a 4 percent gain from the prior session, with the studio's shares rising 14 cents to $11.69 after agreeing to be bought by a consortium led by Sony
SNE, +0.20%
for $12 a share in cash, plus assumed debt, in a deal valued at about $4.8 billion. See full story.

Sony's shares dipped 0.5 percent to $35.66 Tuesday.

In the chip sector, LSI Logic
LSI, +0.41%
became the latest company to lower its third-quarter outlook, prompting brokerage Wachovia Securities to downgrade the stock.

Over the last two weeks, Intel
INTC, -0.68%
National Semiconductor
NSM
and Texas Instruments
TXN, +0.36%
all warned of slowing revenues.

Shares of LSI Logic fell 9.5 percent to $4.75.

Also, Morgan Stanley said it was also lowering its 2005 revenue growth rate for the semiconductor industry, as an inventory correction and slower economic growth have reduced near-term demand.

In another blow, Bear Stearns reduced its capital spending forecast for the semiconductor capital-equipment industry.

Broker action

On United Defense, Merrill told clients: "While demand for Bradley armored vehicles, armor track and upgrades could lead to earnings growth, naval ship and repair programs may be pressured in coming years."

Shares of United Defense traded down 1.3 percent, to $39.29, while Rockwell Collins shares erased early weakness, to end up 0.7 percent at $36.34.

Oil, currencies, gold, bonds

Crude futures closed more than 1 percent higher in New York on supply concerns and fading hopes that OPEC would adopt a rise in oil output quotas when cartel members meet Wednesday in Vienna, Austria.

Overnight, a Saudi oil minister said his country was not in favor of raising OPEC's official production rate or the $22 to $28 price band, AFX News reported. See full story.

Crude for October delivery ended up 52 cents at $44.39.

On foreign exchange markets, the dollar edged lower after the Commerce Department reported the U.S. current account deficit widened to a record $166.2 billion in the second quarter, from $147.2 billion in the first quarter.

Worries about the United States' inability to draw enough foreign capital to finance its trade imbalance have hounded the dollar for nearly two years.

The euro was up 0.1 percent against the greenback at $1.2265. Against the Japanese yen, the dollar was off 0.6 percent at 109.40. See full story.

Gold for December delivery rose $1.50 to $407.50 after climbing as high as $409 an ounce during trading Tuesday.

"Shorter term, gold as well as the euro are most likely anticipating additional weak economic reports for the rest of the week, which would bring more dollar selling," said Dale Doelling, chief market commentator at Bullion.com in Chicago. See full story.

U.S. Treasury prices regained some traction in afternoon trade, after trading lower on August retail sales much of the session.

The benchmark 10-year Treasury note ended the day up 2/32 at 100 3/32. Its yield
TNX, +0.63%
which moves in reverse of price, stood at 4.13 percent. See full story.

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